Of contracts and claims: Agencies face liability issues

While the threat of malpractice may be new, advertising agencies have long protected themselves from other legal and ethical perils.

Many liability issues are handled in agency-client contracts. For example, agencies generally use information provided by clients for advertising claims. In standard contracts, the agency is protected from suits involving the accuracy of those claims.

The contract absolves the agency of responsibility if something goes wrong with the advertised product and consumers suffer damages or other product and liability claims arise.

Agencies also buy insurance to protect themselves from claims brought by third parties. For example, if the music or words of a broadcast spot infringe on a copyright or trademark, the agency's indemnity policy would kick in. It also covers ads that might be libelous, slanderous or might violate the privacy of a living individual or the right of publicity held by the estate of a deceased person.

In addition to legal and financial precautions, agencies can take other steps to protect themselves, attorneys say. For one, attorneys suggest agencies talk with clients to set a clear definition of responsibilities. In addition, agencies can hire attorneys, either as consultants or as part of the agency staff, to screen proposed ads before they run.

At True North Communications' FCB Worldwide, all advertising is reviewed by the company's legal department. "We want to see it all," said Jeffrey Michel, associate general council at True North.

The required broadcast network approval of spots before they run is a good stop gap, as well.

Finally, focus groups and other methods of testing a campaign can alert agencies to potential problems.

"You have the vehicles to test it before you put it on the Super Bowl," Mr. Michel said.